Essays on Non-linearities in Macroeconomics

This dissertation consists of three essays studying different topics in macroeconomics under the common aim of assessing the role of nonlinear dynamics in explaining selected facts of interest. In Chapter 1, co-authored with Marzio Bassanin and Ester Faia, we explore the linkages between financial crises and debt markets, where collateral constraints and opacity of asset values are the norm. We, therefore, introduce ambiguity attitudes in beliefs formation in a small open economy model where borrowers investing in risky assets face occasionally binding collateral constraints. We estimate the ambiguity attitudes process and derive that borrowers endogenously act optimistically in booms and pessimistically in recessions. Analytically and numerically we show that our ambiguity attitudes coupled with the collateral constraints crucially help explaining asset price and debt cycle facts. Chapter 2 studies the pass-through of sovereign risk in an environment where latent condence factors, along with fundamentals, might feed debt crises. A Markov-switching VAR with three variables (private spread, sovereign spread, debt-to-GDP) is estimated on fiscally-leveraged economies (Italy, Spain, Portugal). By allowing fiscal and financial sources of amplication, the model historically identies: i ) an high vulnerability regime, where sovereign spreads show excessive sensitiveness to fiscal imbalances. Those periods line up mostly with the global financial turmoil and the sovereign European debt crisis; ii ) an high synchronization regime where the sovereign and financial risk measures are strongly tied in a synchronized comovement. Those period identify more the first phases of the two crises. Finally, Chapter 3, co-authored with Othman Bouabdallah and Pascal Jacquinot, aims to extract an empirical narrative for France on the relationship between fiscal policy and debt sustainability, in the context of fiscal regimes. We build a DSGE model, where Markov-switching dynamics are introduced on the tax revenues response to debt, expenditure and output gap. We then bring the model to the data and show that two distinct fiscal regimes took place over the period 1955-2009: a sustainable regime covered `Les Trente Glorieuses' until 1977 and then re-emerged in 1999 with the euro membership; an unsustainable regime, instead, characterised the 1978-1998 period, where a policy mix of disinflation, external and internal balance led to primary deits and unstable debt-to-GDP accumulation.